Don Cayo: Potential problems with expanded CPP can be dealt with

Given the results of this fall’s federal election, it’s no longer a question of whether the Canada Pension Plan is likely to be expanded. Harper’s Conservatives said it wouldn’t be, but Trudeau’s Liberals said it will be, and the Liberals won. So it’s time to ask: “When? How?”

Given the results of this fall’s federal election, it’s no longer a question of whether the Canada Pension Plan is likely to be expanded. Harper’s Conservatives said it wouldn’t be, but Trudeau’s Liberals said it will be, and the Liberals won. So it’s time to ask: “When? How?”Ryan Remiorz / THE CANADIAN PRESS

Given the results of this fall’s federal election, it’s no longer a question of whether the Canada Pension Plan is likely to be expanded. Harper’s Conservatives said it wouldn’t be, but Trudeau’s Liberals said it will be, and the Liberals won.

So it’s time to ask: “When? How?”

The idea of higher mandatory contributions to the CPP has been kicked around for a long time, and it has its detractors. Some raise valid points, others not so much.

Some critics — mostly those promoting some alternative such as pooled pensions or the former government’s shared-risk proposal — like to cite data showing an encouragingly high percentage of Canadians already save for old age. Therefore, they argue, no mandatory CPP increase is warranted, although they may approve of voluntary contributions from those who choose to pay for higher eventual benefits.

But they miss the point that even though many do save responsibly for retirement, some don’t. And only higher mandatory payments — not voluntary ones that spendthrifts are likely to shun — will keep them from being a burden on future taxpayers.

Other critics, the Canadian Federation of Independent Business prominent among them, argue that Ottawa must think twice about imposing higher payroll taxes. This case is on more solid ground. Payroll taxes are insensitive to profits, and they’ve been shown to dampen business growth and employment more than most other forms of taxation. And while CPP premiums may be regarded as an investment by workers, they’re an expense — a de facto payroll tax — for businesses.

On the other hand, there’s a potentially huge cost to future generations if today’s workers don’t take care of their own retirement needs.

Today’s CPP is mandatory for all working Canadians under age 65, but it’s not designed and isn’t intended to provide a full retirement income. It’s just a supplement.

So pooled pension plans are a good idea that can and should be continued for any businesses and individuals that choose to join them. By combining the contributions from many workplaces, they can overcome the diseconomies of small scale that make it impractical for many companies to have pension plans. They also dilute the risk to RRSPs and very small pension plans that don’t have enough money to fully diversify their investments.

The idea of giving people a choice of where to invest their retirement savings also has merit. And Dan Kelly, the president and CEO of CFIB, points out that survey data shows only 19 per cent of Canadians say an expanded CPP is their best choice for retirement savings. Tax-free savings accounts and Registered Retirement Savings Plans are much more than twice as popular.

Kelly also notes payroll taxes are seen as the biggest impediment to growth by three-quarters of CFIB’s members — almost twice the number that put income tax at the top of their list. And more than 40 per cent want CPP premiums frozen.

On the question of whether governments should force Canadians to save more, Kelly says, workers are nearly evenly split — 43 per cent say Yes, and 40 per cent say No. Among small business owners, just 24 per cent say Yes and 66 per cent No.

So what to do? My solution is to take pages from all of these books.

First, increased mandatory contributions don’t necessarily have to go to CPP. Workers can be given a choice of other suitable savings plans. CPP is so big it doesn’t need more contributions to leverage economies of scale. Yet it wouldn’t cost much more to manage as much extra money as people want to invest.

Low-income Canadians who can’t afford to save more can easily be exempted. If they remain low-income all their lives, they’ll probably have to rely on public support in their old age anyway, so larger exemptions won’t cost much in either the short- or long-term.

And why must employers match employees’ CPP contributions dollar-for-dollar? The cost is split evenly now, but the feds could choose a lower ratio — anywhere between zero and 49 per cent.

It’s fair to debate things like the amount of income to be exempted or what proportion businesses should pay. But we shouldn’t condemn an expanded CPP simply because it could, if done wrong, cost businesses or poor people too much.

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